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best method for rolling forecast based on linear fit
2 messages · John Putz, Brian G. Peterson
John Putz wrote:
When I looked at the rollingRegression function it seems to allow you to compare the performance of the fit over a rolling window. That seems to be different from what I was looking for which is to perform a fit for a period from t1 to t2 and then see how it performs at predicting the return at t2+1 as the window (t1,t2) rolls through the my data set. Am I misunderstanding what these functions do? At the end of the day I'm looking for a vector of forecasted values that I can compare to the actual (out-of-sample) values. Thanks again, John.
RollingRegression performs the regression over a rolling window on a
time series. Nothing Else. rollapply in zoo (which is used by
RollingRegression) would do the same.
Regression, in and of itself, is not a predictive tool. Unlike GARCH,
ARIMA, etc, there is not a built-in "prediction" from a regression
analysis.
The *comparison* of how well the ex post regression result on the
rolling window compares to the out of sample t+1 performance is your
(proposed) trading or analytical model. You would need to write the
code to do that comparison at the appropriate time lag.
Regards,
- Brian
----- Original Message ---- From: Brian G. Peterson <brian at braverock.com> To: John Putz <johnputz3655 at yahoo.com> Cc: r-sig-finance at stat.math.ethz.ch Sent: Thursday, August 16, 2007 10:44:51 AM Subject: Re: [R-SIG-Finance] best method for rolling forecast based on linear fit John Putz wrote:
> Hello, > > A basic question. Can anybody point me towards the best method to
use to perform a rolling 1 step ahead forecast of a price series based
on a rolling N day linear fit? I believe I used the dse package in the
past, but my recollection is it was somewhat cumbersome.
If you're using a linear model as your predictor, it's not strictly
speaking a "one step ahead" prediction, but rather an ex post rolling
window analysis.
"best" is highly subjective depending on how fancy you want to be.
zoo has the rollapply function with a configurable window to roll over.
The rollingRegression function in PerformanceAnalytics might make things
a little easier to use.
There are also many robust regressors that you might wish to consider,
especially if you're using a relatively short window.
Regards,
- Brian